A pip is the standard unit for measuring a price move in forex: 0.0001 for most currency pairs and 0.01 for pairs quoted in Japanese yen. A lot is a standard trade size, and the contract size tells you how many units of the asset one lot controls, which is what turns a price move into dollars.
Leverage is the third piece. It lets you open a position worth more than the money set aside for it, called margin. Leverage changes how much margin a trade ties up, but your profit or loss per pip comes only from your position size. The examples below use EUR/USD, gold (XAU/USD) and bitcoin (BTC/USD) at illustrative prices.
Pips and points: how price moves are measured
Most forex pairs are quoted to four decimals, plus a fifth fractional digit on most platforms. One pip is the fourth decimal: if EUR/USD moves from 1.0850 to 1.0875, it has moved 0.0025, or 25 pips. For yen pairs a pip is the second decimal, so USD/JPY moving from 150.00 to 150.40 is 40 pips.
The fifth decimal on EUR/USD (0.00001) is a tenth of a pip, often called a pipette or fractional pip.
The word point is used in two ways, and mixing them up causes real sizing errors:
- In everyday trading talk, a point is a one-unit move in price. Gold moving from $2,400 to $2,401 is "one point", or simply $1.
- On MetaTrader 5 (MT5), a point is the smallest price step of the symbol. On a five-digit EUR/USD quote, one point is 0.00001, so 10 points equal 1 pip.
Gold and crypto have no universal pip convention, so most traders measure their moves in dollars, as this guide does.
Lots and contract size
A lot is the unit you enter in the volume box when you place a trade. The contract size is how much of the underlying asset one lot represents. It differs by asset class and sometimes by platform.
- Forex: one standard lot is 100,000 units of the base currency (the first currency in the pair). One standard lot of EUR/USD is 100,000 euros.
- Gold: 100 troy ounces per lot is common, but some platforms use other sizes.
- Crypto: usually sized directly in coins, such as 0.25 BTC. Where crypto is traded in lots, one lot is often one coin, but this varies.
Forex lots come in three common sizes:
| Lot type | Volume | Units of base currency | Value of 1 pip on EUR/USD |
|---|---|---|---|
| Standard | 1.00 | 100,000 | $10.00 |
| Mini | 0.10 | 10,000 | $1.00 |
| Micro | 0.01 | 1,000 | $0.10 |
Any volume in between works too: 0.37 lots is 37,000 units, worth $3.70 per pip on EUR/USD.
Pip value and the P&L formula
Every profit-and-loss (P&L) calculation comes down to one formula:
P&L = size × contract size × price change
The price change is exit minus entry for a buy, and entry minus exit for a sell. The answer comes out in the quote currency: the second currency in the pair, or US dollars for XAU/USD and BTC/USD.
Pip value is the same formula with a one-pip price change. For one standard lot of EUR/USD: 1 × 100,000 × 0.0001 = $10. Because the quote currency is the US dollar, the result is already in dollars.
When the dollar is not the quote currency, you convert. One standard lot of USD/JPY is 1 × 100,000 × 0.01 = 1,000 yen per pip. At 150.00 that is 1,000 ÷ 150, about $6.67, and it shifts slightly as the rate moves.
Worked example: EUR/USD
For example, you buy 2 lots of EUR/USD at 1.0850 and close at 1.0885.
- Price change: 1.0885 − 1.0850 = 0.0035, or 35 pips
- P&L: 2 × 100,000 × 0.0035 = $700
- Check with pip value: 35 pips × $10 × 2 lots = $700
Worked example: gold
For example, you sell 0.5 lots of XAU/USD at $2,400 on a platform where one lot is 100 oz. Price rises and you close at $2,412.
- Price change for a sell: 2,400 − 2,412 = −$12
- P&L: 0.5 × 100 × (−12) = −$600
- Check: at 100 oz per lot, a $1 move is worth $100 per lot, or $50 on 0.5 lots, and 12 × $50 = $600 lost
Worked example: bitcoin
For example, you buy 0.4 BTC at $65,000 and close at $66,500. Crypto is sized in coins, so the contract size is 1.
- Price change: 66,500 − 65,000 = $1,500
- P&L: 0.4 × 1 × 1,500 = $600
Quick reference: pip and point values
| Instrument | Price move | Position size | Worth |
|---|---|---|---|
| EUR/USD | 1 pip (0.0001) | 1.00 lot | $10 |
| EUR/USD | 1 pip | 0.10 lot | $1 |
| EUR/USD | 1 pip | 0.01 lot | $0.10 |
| USD/JPY | 1 pip (0.01) | 1.00 lot | 1,000 yen (about $6.67 at 150.00) |
| XAU/USD, 100 oz lot | $1 | 1.00 lot | $100 |
| XAU/USD, 100 oz lot | $1 | 0.01 lot | $1 |
| BTC/USD | $1 | 1 BTC | $1 |
| BTC/USD | $100 | 0.1 BTC | $10 |
Leverage and margin
The notional value of a position is its full market value: size × contract size × price. Margin is the part of your balance the platform sets aside to keep the position open. Leverage is the ratio between the two:
Margin = notional ÷ leverage
Leverage is written as 1:100 or 100×. Using the positions from the examples above:
| Position | Notional value | Margin at 1× | Margin at 20× | Margin at 100× |
|---|---|---|---|---|
| 1 lot EUR/USD at 1.0850 | $108,500 | $108,500 | $5,425 | $1,085 |
| 0.5 lot gold at $2,400 | $120,000 | $120,000 | $6,000 | $1,200 |
| 0.4 BTC at $65,000 | $26,000 | $26,000 | $1,300 | $260 |
Leverage does not change the value of a pip: one lot of EUR/USD is worth $10 per pip at 1×, 20× or 100×. Only the margin differs. If losses shrink your equity below the margin your positions need, the platform can close them automatically, which is called a stop-out.
Account types differ. On Drift Fund's simulated accounts, for example, Spot accounts use no leverage (1×), while Futures accounts allow leverage up to 100×. The guide to forex, futures and spot explains how those markets differ.
Why leverage magnifies gains and losses
Leverage matters because it lets you open positions far bigger than your balance could pay for outright. The useful measure is effective leverage: the total notional value of your positions divided by your account equity.
For example, on a $10,000 account:
- 1 lot of EUR/USD at 1.0850 is $108,500 notional, about 10.9× effective leverage. A 1% move in EUR/USD (0.01085, or 108.5 pips) is worth $1,085, which is 10.85% of the account.
- 5 lots is $542,500 notional, about 54× effective leverage. The same 1% move is worth $5,425, more than half the account.
The market moved 1% in both cases. Position size turned that move into an 11% or a 54% swing in your account, in either direction. High available leverage is not a reason to use it: decide what you can afford to lose if your stop is hit, then size the trade from that, as shown in how to calculate position size.
Check the contract specification on your platform
Before sizing a trade, confirm the instrument's numbers on your platform. On MT5, right-click the symbol in Market Watch and choose Specification. Look for:
- Contract size: units per lot, such as 100,000 for EUR/USD or 100 for a 100 oz gold symbol.
- Digits: the number of decimals, which tells you the size of one point.
- Minimal volume, maximal volume and volume step: the smallest trade, the largest trade, and the increment you can trade in.
On other platforms, look for the instrument's information or specification panel. If a gold symbol is 10 oz per lot instead of 100, one lot is worth $10 per $1 move, not $100.
Common mistakes
- Confusing pips and MT5 points. A "30-point" stop on a five-digit EUR/USD quote is only 3 pips. Check the digits before you set any distance.
- Assuming every gold symbol is 100 oz. Read the contract size in the specification before your first trade on a new platform.
- Treating margin as your risk. Margin is a deposit, not a loss limit. Your risk is stop distance × value per point × size; see how to measure risk.
- Using $10 per pip on every pair. That figure applies to pairs quoted in US dollars, such as EUR/USD. Convert for pairs like USD/JPY.
Key takeaways
- A pip is 0.0001 on most pairs and 0.01 on yen pairs. On MT5, a point is the smallest price step, often a tenth of a pip.
- A standard lot is 100,000 units of the base currency, worth $10 per pip on EUR/USD. Mini and micro lots are a tenth and a hundredth of that.
P&L = size × contract size × price changeworks for forex, gold and crypto alike.Margin = notional ÷ leverage. Leverage changes the margin needed, not the value of each pip, but the bigger positions it allows magnify gains and losses.- Always check the contract specification on your own platform before sizing a trade.
Frequently asked questions
How much is 1 pip worth?
It depends on the pair and your position size. On EUR/USD and other pairs quoted in US dollars, one pip is worth $10 per standard lot, $1 per mini lot and $0.10 per micro lot. On pairs with a different quote currency, the pip value is in that currency and must be converted.
What does 0.01 lot mean?
A volume of 0.01 is one micro lot. In forex that is 1,000 units of the base currency, worth $0.10 per pip on EUR/USD. On a gold symbol with 100 oz per lot, 0.01 lot is 1 oz, so a $1 move is worth $1.
Is higher leverage riskier?
Leverage on its own does not change your profit or loss per pip; position size does. The danger is what high leverage allows: positions so large that a normal price move takes a big share of your account. If you size every trade from your stop loss, the leverage setting mainly decides how much margin you tie up.